ISRI’s economics team predicts 2022 will be a positive year for recyclers, even as COVID-19, labor shortages, shipping problems, and inflation pose continued challenges for the industry. During a Jan. 20 webinar they gazed into their crystal ball to see what headway recyclers could make despite the challenges they face.
“Real profitability has increased across the recycling space over the course of the last year, and I think the expectation is that, as the global economy continues to recover from the COVID pandemic, that we’re going to continue to see growth—albeit slower growth,” says Joe Pickard, ISRI’s chief economist and director of commodities,
John Dunham, president of John Dunham & Associates, prepares ISRI’s annual Economic Impact Study on the industry’s essential role in the global economy. He cautions not to be overoptimistic that economic problems will fully resolve in 2022. “The economy is not in great shape, yet it has not recovered from the COVID depression; employment is still down by 3.5 million people; inflation has spiked; debt …is at a record high and that has a dampening effect on economic growth,” he states. “Trade deficits are up; wages are down, and GDP still hasn’t caught up.” Other key points Dunham makes:
Costs, capacity constraints, increased surcharges, and delays will continue to plague the ocean freight, rail, and trucking industries. The underlying causes for this include increased regulation, COVID restrictions and labor shortages, and high demand for goods. Backhaul to Asia will continue to be an issue.
Continued price inflation at the wholesale level (PPI) at much faster rates than have been seen historically. It is likely that 4% to 5% inflation will be the new normal. There will continue to be product shortages at least through the end of the year.
Elevated scrap metals demand should moderate through 2022 as the economy continues to weaken. Paper scrap will continue to be soft due to supply/demand incongruences, while plastic scrap demand is likely to begin to recover as more regulations requiring scrap content percentages are passed.
Labor shortages will continue but start to moderate. Higher wage rates, and even faster growth in benefit costs both through insurance cost increases (to make up for COVID losses) and through regulatory benefits like paid sick leave requirements.
Higher (though still negative) interest rates are coming. This means that capital investment will still be relatively inexpensive from a financing perspective.
You can view Dunham’s slide presentation here.
Pickard notes that trade data from the Commerce Department and ISRI show U.S. exports of all recycled commodities (including ferrous and nonferrous metals, paper, plastics, textiles, rubber, glass, etc.) during January through November 2021 increased 10% year-on-year by quantity to 35.6 million metric tons and surged 53% higher in dollar terms to $28.8 billion. While trade restrictions will continue to impact the global flow of commodities, recycled commodities will find a home.
For example, even though U.S. exports of all recycled materials to China declined from 16 million metric tons in 2016 to fewer than 2 million metric tons in 2021, countries like Bangladesh, Mexico, Turkey, and Vietnam have taken more U.S.-sourced materials. “If I told you 10 years ago that we would see U.S. exports to China decline by some 15 million tons you probably would have laughed,” Pickard notes. “But you probably also would have laughed if I told you Bangladesh was going to be one of the top 10 destinations for recycled commodities as well.”
As a standout example of a commodity seeing an uptick in 2021, Bret Biggers, ISRI’s senior economist, notes U.S. companies exported 15.3 million metric tons of recycled paper in January through November 2021. “Compare that to the year before: 13.5 million metric tons; so roughly 2 million metric tons more,” he says. “We’re seeing very high paper prices right now. We haven’t seen this type of growth or increase since September 1994.”
In their presentation Biggers and Pickard share commodity-specific data as well as the effects on the narrowing of growth rates between established and developing countries (whose economies before the start of the pandemic were growing much faster than the old industrial players), and how government initiatives related to environment and Economic Justice might affect the marketplace. Their conclusions:
- Positive global economic growth elevated primary commodity prices, and the increased focus on sustainability, the green economy and decarbonization initiatives are key to demand for recyclables.
- While trade restrictions will continue to impact the global flow of commodities, recycled commodities will find homes.
- Higher regulatory, labor and input costs will raise the cost of doing business and barriers to entry.
- Logistical headaches are not going away anytime soon. Sourcing material closer to home will become increasingly important for many manufacturers.
- Domestic demand rises as new economic investments in metal and commodity production will be coming online along with increased infrastructure investment.
- Pricing power has always resided with the consumers: that is changing as the effects of industry consolidation set in.
Pickard has a bullish outlook for recycled commodity markets this year, despite downside risks. Increased global trade growth and trade flows help, he says. Increased investment in domestic commodities production capacity, along with the U.S. government’s focus in infrastructure, create opportunities for recyclers.
“It’s similar in some respects to last year, where we’re facing higher labor costs, labor shortages [and] high transportation costs, but still ‘21 was a very positive year and I think 2022 is going to be similarly positive,” Pickard concludes.
ISRI involves members through its Trade Committee, safety programs, advocacy, and information resources. Among the association’s offerings are the educational sessions, company exhibits, and networking spaces available at ISRI2022. Early Bird registration for the event, which is March 21 to 24 at the Mandalay Bay Resort and Casino in Las Vegas, ends Monday, Jan. 24.
Photo by AbsolutVision on Unsplash.